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RLI Rallies 11% Year to Date: What's Driving the Stock?

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RLI Corp’s (RLI - Free Report) share price rally makes the stock an investor favorite. Shares of the company have gained 11.1% year to date against the industry's decrease of 8.5% and the Zacks S&P 500 composite’s decline of 12%. With a market capitalization of $3 billion, average volume of shares traded in the last three months were 0.2 million.



 

What’s Behind the Upside?

RLI Corp. delivered positive earnings surprise in three of the last four quarters with the average beat being 3.98%.

This Zacks Rank #3 (Hold) insurer is one of the industry’s most profitable P&C writers with an impressive track record of underwriting profits in 37 of the past 41 years, particularly the last 22 years, reflecting superior underwriting discipline.

In fact, in its effort to boost underwriting results, RLI Corp has decided to drop underperforming products from its property business.

A diversified and compelling product portfolio, focus on new products, re-underwriting of several products, sturdy business expansion and operational strength have been aiding improvement in premiums.

Also, an improving rate environment, reflecting a strengthening economy, has been supporting better investment results.

Together, these have driven top-line improvement for the company.

The company also has an impressive inorganic growth story. Its strategic buyouts include Contractors Bonding Insurance Company, Rockbridge Underwriting Agency as well as a 20% stake in Prime Holdings Insurance Services, a specialty E&S company.

Lower tax rate due to the overhaul in tax policy, which slashed the tax rate to 21% from 35%, lent an additional boost to the bottom line.

A conservative underwriting and reserving policy continues to help insurers enjoy favorable reserve releases.

RLI Corp’s return on equity — a measure of profitability — is 11.4%, better than the industry average of 6.6%. This reflects the company’s prudent usage of its shareholders’ funds.

The company also has a solid capital management policy in place. While the company has hiked dividend for the last 43 years, it has also been paying special dividend since 2011. Its dividend yield of 1.3% betters the industry average of 0.5%.

The Zacks Consensus Estimate for earnings and revenues for 2019 indicates year-over-year improvement of 1.9% and 5.6%, respectively.

Stocks to Consider

Some better-ranked property and casualty insurers are Mercury General Corp. (MCY - Free Report) , National General Holdings Corp. (NGHC - Free Report) and State Auto Financial Corp. (STFC - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Mercury General engages in writing personal automobile insurance in the United States. The company delivered positive surprise of 85.00% in the last reported quarter.

National General provides various insurance products and services in the United States. The company delivered positive surprise of 75.68% in the last reported quarter.

State Auto Financial engages in writing personal, business and specialty insurance products. The company pulled off a positive surprise of 62.96% in the last reported quarter.

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